When trading breakouts on support and resistance zones, more often than not, you will experience fakeout instead of breakout.
In extremely volatile forex market, fakeouts are more frequent and more likely than breakouts. Before breakout from trading range, fakeouts can be observed. Those are disaster for beginning forex trader. On the other hand, professional traders love them.
Multiple fakeouts before true price range breakout (of support)
How to trade on breakout and fakeout in forex
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Experienced forex traders will often times choose to trade against breakout. Expecting it, to be just a fakeout. They place stop loss just above maximum reached after the breakout. They are betting on price returning back to the opposite border of the trading range.
By using tight stop loss, those are low risk, high reward trades. Fakeout forex traders can be correct just 50 percent of time and still be in the profit (how to trade forex fakeout strategy). Learn to understand and trade breakouts (forex breakout strategy).
To be able to better distinguish between fakeout and breakout, consider following:
Low volume (forex volumes indicator) on fakeouts, high volume on breakout.
Supports and resistance levels on higher timeframes. Breakout on 1H timeframe while there is massive support above the price in 4H timeframe is more likely to be a fakout.
Consider volumes forex indicator. True breakouts are accompanied with high volume, while fakeouts are usually low volume events.
Consider momentum indicators such as ADX and MACD in similar fashion as volumes. Growing momentum as the price approaches S/R signalizes that forex market is strong enough to break S/R and vice versa.
